Friday, 4 January 2013

Getting Rich Quick for Dummies

by George Chapman

Each year, Christmas is a time for us to be reflective, loving and generous. Naturally then, this evening during the festive period, I found my narcissistic self come out to play with thoughts of how best to make a million before retiring in my mid-30s on a beach somewhere in the Med. At first, my daydreaming entertained ideas of writing and recording a Christmas number one or perhaps a smash-hit festive Hymn. However, I soon realised the need to refine my plans to consider those entrepreneurial pursuits which were more within my grasp. Then it hit me; Curry’s current January Sale advertisement on the TV, shamelessly promoting cut-price Apple goods, inspired the dormant Steve Jobs mark-two within me. The answer is simple – to make a mint in next to no time, invent and market a range of technological products with the success of the iPod or iPhone. How hard can it be?
Incredibly, since its introduction in 2007, sales of the iPhone have grown to account for a greater proportion of Apple Inc.’s annual revenue than any other good produced by the firm. What’s more, the data presented in the graph below demonstrate the seemingly unstoppable force of Apple branding; the exponential growth of the company’s revenues seems unaffected by either the global recession or Steve Jobs’ untimely death. However, without exception, Apple’s total revenues during the year rise sharply to a peak during December (or during the one of the months just before), as shoppers no doubt invest in the latest product range for Christmas. Herein is the first ingredient in my recipe for the perfect product – the ability for sales of the good to remain largely unaffected by negative externalities but to respond favourably to positive externalities (i.e. by boosted sales in time for Christmas).

(source: businessinsider.com)

The second ingredient in this tried-and-tested business success would be the creation of a product which may be improved ad nauseam. Sure, that sounds simple enough; however, it’s crucial to bear in mind that no-one will pay upwards of £500 for a phone which just isn’t worth that sum of money by anybody’s estimations. The trick is to develop an innovative and exciting product which is better than all of the competitors’, yet which is by no means a perfect one. As a result (exemplified by this year’s edition of the fifth iPhone), there is plenty of scope for product reinvention and remarketing – as frequently as annually for the iPhone and iPad ranges. Consequently, there is very little change in the size of the overall product range offered by Apple, whose market domination can be attributed to just a few different goods – the iMacs, iPods, iPhones and iPads.
This narrow product selection would usually come with a few significant disadvantages; reduced choice for consumers and little spread of risk in case of a change in consumer taste against one or more Apple gadget. However, this is where Apple comes in to its own. Thanks to Mr Jobs and his associate inventors, more often than not, Apple products are technologically market-leading and therefore the first choice for consumers anyway. Because of this popularity, product diversification is not so important for Apple by way of a security mechanism. Thus, Apple can reap the rewards of specialisation – they may optimise financial and entrepreneurial efficiency to simply tweak their four major technological products, thereby ever-increasing the opportunity for profit maximisation.     

Efficiency, increased popularity and resultant levels of growth may lead to the final ingredient in this prosperous Apple pie – a range of Veblen goods (due to strengthening of the Apple brand’s reputation). The law of demand for normal goods states that as price for a good increases, the willingness and ability of consumers to purchase that good will decrease. On the contrary, as the price for a Veblen good increases, so does the quantity of the good purchased. This is thought to be linked to the status of the good concerned; that is, those with the good either have greater social standing or supposedly more money than those who don’t. Unsurprisingly, the iPhone 5 has been suggested to be Veblen good, in addition to other Apple products such as the iMacs. Think about it – without the Apple branding, or the popularity of these products amongst the wealthier members of our society, would these gadgets be quite so sought after? The iPhone has been socially endorsed if you will, and consequently its practically unlimited success guaranteed where (theoretically) continual price increases can only increase the demand for the phone.

So there it is – it really is that simple. All that’s left is to do now is to think of a product with each of these features, which doesn’t yet exist. Oh, wait…

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